No one ever said being a grownup was easy. Sure, there are some perks. But above all else, adults are expected to be responsible. They have to go to work, raise their kids, and pay their taxes. That’s how the whole human comedy keeps perpetuating itself. Of course, every now and then it hits a snag.
America has earned a rather bad reputation for debt in recent years. The United States is officially the world’s biggest debtor nation. It’s easy to blame the government for this imbalance. After all, they played a part in creating the record trade deficit. But when it comes to personal debt, Americans must accept responsibility.
Most shoppers know that credit card debt is out of control. The average family is saddled with around ten thousand dollars of credit card debt. But did you know that Americans also owe more in back taxes than any other nationality? According to the latest figures, there are over twenty million delinquent taxpayers in the U.S. They owe in excess of two hundred billion dollars in back taxes. The agency that is responsible for collecting these debts is the Internal Revenue Service (IRS).
No one likes getting a call or a letter from the IRS. They are arguably the most feared government agency in America. On average, they audit around one percent of taxpayers each year, and almost a third of those audited are among the poorest taxpayers, people who claim the Earned Income Tax Credit. An audit is triggered when automated IRS review processes identify tax returns that meet certain specified criteria. Being audited means the IRS thinks you are cheating or making errors. Either way, they want the behavior to stop and they think you owe more money than you paid. This is not, however, a criminal offense. Millions of Americans make mistakes on their tax returns each year, many due to the complexity of the current tax code.
What to do about tax debt?
When a taxpayer is audited, it means he claimed a deduction or exemption the IRS disagrees with, or that he failed to report income on a tax return. Many audits leads to a tax bill that gets sent with the audit findings. But no matter how you wound up with tax debt, the question is, what now? If the audit findings or IRS tax bill require you to pay more than you can afford to pay in one payment, you now effectively have a tax debt. Having an outstanding tax debt is not the end of the world; it’s not even uncommon. It is, however, a matter that should be addressed as soon as possible.
Like all debts, tax debts cannot be simply wished away. In fact, they get more expensive if you ignore them. Fines, penalties, and interest fees can really add up. A tax professional can help you negotiate a manageable agreement with the IRS.
Installment Plans
The first thing a tax consultant will do is examine your tax situation, your finances, and your IRS debt. Once they know what you owe and assuming you have filed all tax returns and are in current compliance with the IRS, tax accountants can contact the IRS on your behalf and attempt to negotiate a payment plan you can afford. But the IRS is not like most creditors. They tend to dictate what you can afford to you, as opposed to negotiating with you to determine an amount you think you can afford. Because so many Americans owe back taxes, IRS agents will work with you on a payment plan, but they are going to want you to pay what you owe in a reasonable period of time, usually no more than 36 or 48 months.
Partial Payment
If the taxpayer or his representative can prove that he cannot afford to pay his tax debt in full, even over time, the IRS payment plan may include a partial payment agreement. This means that the taxpayer will pay what the IRS agrees he can afford, which may be less than the amount necessary to pay the debt in full before the statute of limitations kicks in and the IRS ceases attempts to collect the debt. Typically, tax relief is only available to taxpayers who cannot afford installments or if the IRS made significant mistakes along the way.